People Patterns uses Behavioural Economics as a new source of advantage for innovative businesses. Email me bri@peoplepatterns.com.au to unlock the secrets of consumer behaviour for your business or follow the latest on Twitter @peoplepatterns.

Thursday, September 29, 2011

We've all been there. That customer who soaks up an inordinate amount of time and energy without spending enough for you to justify the level of resourcing. And now it's crunch time - how should you move a customer who had face to face sales representation to a less frequent cycle and/or telesales account management without losing their business? Here are some pointers from behavioural economics to change your service mix.

You don't know what you've got till it's gone...aka "Endowment effect"
You can be sure that the customer took face to face (F2F) representation for granted when they had it - but now that it might be taken away it's seen as a catastrophe. Endowment effect is our tendency to overvalue what we own - in your customer's case, they "own" the level of service they have been used to.

Tell them they can have F2F representation again...but they need to meet the criteria and to do that they can work with their very smart new telesales account manager who will help them get there. Will they like it? Most possibly not because it will be seen as personal affront. But guess what, you're in business and are entitled to treat customers who spend more differently.

Business Class vs Economy, it's your choiceProcedural fairness explains our tendency to accept a judgment if it has been fairly considered and you know the rules. If you've ever flown Business Class and then had to go back to Economy, you will know which you prefer, but you also know what it takes to get back to Business Class - money. Do your customers know what it takes to get F2F representation? Share the decision and the objective criteria (eg spend more than $5,000 pa...) to help them understand that they are actually in control of their servicing - all it takes is increased spend.

But I'm special! I'm an important account!
This type of change reminds the customer that they are one of many, upsetting their sense of uniqueness. Talk to the customer about what makes their business special and why you see a continuing relationship with them, albeit through a different channel.

Don't think about it as losing something
We hate to lose more than we love to win. In this case, the customer may react badly if they perceive the service mix as losing something so do everything you can to frame the change as a gain. Can they get more frequent attention via the phone for example? Do they get the resourcing support of a whole team rather than one individual? Will shorter appointments save them time? Mark out potential reasons why F2F may not have been the best method of contact from that customer's perspective and consider how to use it in your justification. A word of caution though, the change will most probably be seen as cost cutting, so don't go too heavy on the "it's better for you" angle unless you can actually prove a better service level.

Quick like a bandaid
With unpleasant news, get it over quickly because we adapt more readily if we are not constantly reminded of what has changed. Handover the accounts (and do this properly by thoroughly briefing the new rep and telling the customer) and move on so the healing can begin.

Still scared to act?
If you are still procrastinating about making the changes, know that you are falling into the trap of loss aversion - you are more fearful of losing the business of some difficult customers than motivated by the gains you can make by having your F2F sales reps concentrate on the accounts with most potential. And you may well lose some customers. So to get over this mental hurdle, do some number crunching. How much does it cost you to service those accounts, what's your margin, and what's the opportunity cost between these accounts and the potential accounts your rep could be growing? Overcome your reticence with a good dose of fear busting.

By no means is changing service mix an easy thing to do, but it is an important aspect of managing your business. If you want to take it a step further and fire a customer, you may want to check out "Firing a Customer - what holds us back?". Until next time, happy dropping!

Tuesday, September 27, 2011

Not one of my most sophisticated posts, I'll admit, but this Eftpos ad had me perplexed for a moment. I couldn't work out why they were promoting a hygiene strip across the coffee - you know like the sanitation strip you get in hotel bathrooms?

Tuesday, September 20, 2011

An article on the gender difference in booze buying behaviour grabbed my attention the other week. "Cheap Booze for him" headlined a story about some Roy Morgan research that identified that blokes were driven by bargains, whereas women sought helpful customer service ("Cheap Booze for him" by Inga Gilchrist, MXNews 4/7/11). The article quoted bar duty manager David Dearlove as explaining that emotions were the difference, where "females want more from a situation, so they want to be waited on. Whereas guys just say 'Give me my beer' and they're done." Very hunter-gatherer!

Devising your customer engagement plan
As this snippet of research indicates, businesses have a lot of decisions to make when structuring the optimal customer engagement plan (*refer caveat below). In this case, "beer on sale" would likely stimulate male foot traffic and you would tend to up-weight staff at the registers. A promotion on "wine matching" may instead stimulate more female custom, and you would need to ensure you had staff available in the aisles to direct purchase decisions.

At what point can you influence the purchase decision?
The interesting point here I think is that men in this scenario are making the decision before entering the store - indeed it is the reason they visit the store. Women, on the other hand, visit the store in order to make a decision, and in fact be helped to make it. This means the retailer has different opportunities to influence what the customer walks away with.

To make the most of male customers, the retailer should place high margin wine or champagne near the beer on special, suggesting the guy keep in sweet with his lady by coming home bearing gifts. This is a technique used in grocery where nappies sell well with beer! This opportunity for the retailer centers around the behavioural principles of sunk cost and mental accounting. The guy has already 'spent' the amount of money for the beer before he arrives in store (sunk cost), and that means that it should be easier to up-sell because any other purchase comes out of another mental bank account.

To make the most of female customers, the retailer can of course use direct customer service, but the other opportunity is to help the decision making by noting which wines are most popular, best value, match with particular foods and so on. You have probably seen these techniques applied on point of sale, like "staff picks" or "popular seller", and these work because they use the behavioural economics principle of herding - we go where others go. If you know other people like the wine, then there is less chance of making a poor choice. Use of a rating system can also help to frame the decision, so a rating system for value or taste can help influence customer purchases.

Behavioural Economics can influence both genders
Whilst I do enjoy little snippets on gender differences, more important to your business is how you can influence the behaviour demonstrated by the sexes. Male or female, your customer can be greatly influenced by strategies to get them in the door, and then again whilst in store so it may be worth you considering what Behavioural Economics can offer at each decision point. Until next time, happy boozing.

(*Note, whilst the article on the research pointed to some gender differences which I have used in this post, there are doubtless many exceptions and qualifiers that you would need to consider before applying carte blanche to your business. Start with accessing the source research through Roy Morgan if you are interested.)

"Turns out that big, thick tomes of information do serve a purpose – making people feel good. In a recent survey, business executives were most confident in a decision being “well thought out” when the supporting research was “comprehensive” and “accurate."

But when asked if the supporting research made a difference in the business decision (not feeling good but having impact). A very different picture emerged. “Making a difference” requires market research to do at least one of two things: say something new or say something contrarian."

I think Yi is spot on for a couple of key behavioural reasons;

Status quo bias – comfort in sticking to what we know, and Loss aversion – being more fearful of losing what we have than risking a gain

There’s a lot of comfort in a big, professional document because that implies safety, thoroughness and, frankly, that someone else has done the thinking so we don’t have to. (It also helps to justify the expense on the research because quantity still trumps quality a lot of the time in perception management).

Of course it's not just market research that taps into our desire for credibility. Just think about the business documents and spreadsheets we slave over that your boss may not even read. Executive summaries are there for a reason after all.

The other interesting thing we can draw from behavioural economics is the “not invented here” bias that we are subject to – in this case it explains why a lot of those research findings don’t go anywhere. To get traction, the stakeholders need to be part of the insights generation phase, otherwise the outputs are likely to be filed away in a drawer.

So what's the answer? How about we take some chances and throw away the templated documents, the proforma Powerpoint presentations, the phone book sized research reports and instead throw some reflections up on a whiteboard to discuss, challenge, laugh about, but ultimately get stimulated enough to take action? Getting your researchers to evoke insights rather than yawns? Sounds good to me.

Tuesday, September 6, 2011

Here's some self-disclosure for you. I find when I am following particular Twitter topics (for instance "Behavioural Economics"...yes, I am that nerdy) I start to ignore tweets that have been incessantly retweeted. This is contrary to the Behavioural Economics principle of herding ie we go where others are. So if my fellow Twitterites are actually helping me sort out which content is of most interest in the marketplace, what on earth is behind my irrational shunning of these tweets?

I think it comes down to hard coded arrogance. I want to have discovered it myself - the fact that others have retweeted it en masse diminishes my sense of uniqueness, and uniqueness is a central part of our identity. There's a part of us that wants to be the black sheep. Turning up to a party in the same dress as the host, ordering the same meal at a restaurant as someone else, excitedly telling a friend of an App you've discovered only for them to turn around and say they knew about it days ago, these are things that niggle at our sense of uniqueness.

I also think I am caught in the old content filtering mindset where you would read the source (eg newspaper article) and from there on, related strands of material would be supplementing that original piece through editorial or review. With retweets, there is usually no value add beyond distribution and so I find my interest level is subdued rather than activated. It's dilution rather than illumination. The related behavioural concept at play here is vividness, where we tune into things that are more striking. Reweets undermine vividness through their sheer domination of the topic feed.

I'm interested in your reaction to retweeted topics and whether you likewise 'turn off' from reading some content because of its popularity? Drop me a comment (and I look forward to you retweeting this piece!).

About Me

Hi! I'm Bri Williams and I run People Patterns, a consultancy specialising in buyer behaviour. I deliver benefits to you by tweaking the interactions you have with your buyers through the application of behavioural science. A marketer and consumer behaviouralist, I've worked across industries for over 15 years, am a specialist contributor to Smartcompany.com.au, facilitator, speaker and author. Contact me at bri@peoplepatterns.com.au to find out how to get your buyers to buy more.

Services available from People Patterns

People Patterns is about businesses getting their buyers to buy more through the application of proven techniques from behavioural sciences such as behavioural economics. By knowing the patterns, you can take the guess work out. Thin of it like "Magician's Secrets finally revealed", but for buyer behaviour!

Contact me via bri@peoplepatterns.com.au or 0408 392 173 to find out about what a difference this new perspective can bring. An obligation free chat could be the best thing you do for your business this year!